To sum up defined benefit pension plans in one sentence: they’re complex, with plenty of information to evaluate, and they bear implications for earnings and cash flow that don’t always move in the same direction. Thanks to rising interest rates in 2013, net pension obligations shrank while assets grew. Result: the best pension funding status since before the financial crisis.

Investors might be tempted to ignore pension effects on financial reporting simply because of the “feel good” aspect of improved funding levels. That might be short-sighted because the awkward and complicated accounting for the pension costs can present a far different picture than its cash flow effects – and it isn’t something that non-GAAP earnings presentations can cure. In this report, we examine the status of defined benefit pension plans in the S&P 500 firms, and dissect the earnings anomalies introduced by the GAAP pension standards.